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Morningstar launches RIA retirement platform as others scale back

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Morningstar is launching a new retirement plan platform to help RIAs better serve their 401(k) clients — just days after TD Ameritrade partially exited the space and Wells Fargo pulled out entirely.

"This is an opportunity for us, in a scalable way, to provide our advice to more retirement plan participants through leveraging their (Morningstar's) technology," says Scott Matheson, defined contribution practice leader at Captrust, the first RIA to sign on with the service.

With $300 billion in client assets under management, Captrust's average client 401(k) plan size is $100 million. However, its smaller clients run single-digit million dollar plans while some of its super-sized clients collectively hold billions of dollars in assets.

The retirement plan space is rapidly evolving to serve plan advisors serving all different sizes and types of clients. Morningstar's announcement is the third largest development to reshape the space just this month.

Last week, TD Ameritrade announced it is selling its retirement plan custody business to a fintech firm in order to focus on its core business of supporting RIAs. The firm will continue to offer retirement plans to RIAs for which it will maintain sales, service and marketing teams. It still offers RIAs a turnkey retirement platform. Eight days earlier, Wells Fargo announced it is selling its retirement plan services operations for $1.2 billion.

"Wells sells. TD sells. Morningstar launches. What do they know that these other guys don't know?" says Tim Welsh, consultant with Nexus Strategy.

Welsh calls the move "a terrific opportunity both for Morningstar and advisors.

"That's the beauty about Morningstar," he adds. "They are uniquely qualified to do this. It's a pure research offering — a natural extension of their capabilities."

Morningstar, which does not sell its own proprietary products, has offered managed retirement accounts composed of investment offerings from different firms for years. But it has controlled the construction of those portfolios.

The new platform gives RIAs the chance to construct portfolios of their own based on their clients' unique needs and their own expertise, the firm says.

"Morningstar received feedback from multiple RIA firms that they wanted more control over the managed account investment process," says Morningstar's Rob Vosper, the head of business and distribution strategies for the company's retirement solutions division. "But [RIAs] didn’t want to be responsible for participant assignment and building the technology solution necessary to support a managed account and wanted a provider who could work across multiple recordkeepers."

Recordkeepers are firms that keep track of 401(k) assets.

The first recordkeeper to sign onto Morningstar's new platform is Schwab's Retirement Plan Services division. Vosper says he expects numerous other recordkeepers to sign on. One of the chief value propositions of the new service, Matheson says, is that it is recordkeeper-agnostic.

Another driving force behind the platform is to help RIAs offer smarter, data-driven solutions that are superior to the target date funds that are ubiquitous in the space, says Mike Peterson, a Schwab spokesman.

Target date funds shift asset allocations in client portfolios over time based solely on individuals' anticipated date of retirement.

However, Morningstar's technology will be capable of factoring in other data points, including a client's tax rate based on their zip code, their savings rate and their gender, which can impact longevity projections, according to Peterson. "It goes much farther than a target fund," he says.

Studies have shown that the adoption of managed accounts can lead to better outcomes for clients, he says, ranging from better diversified and personalized portfolios, higher savings rates and increased confidence among the plan participants.

The enhanced number of data points will enable firms like Captrust to have more compelling conversations with their clients about their retirement plants, Matheson says. Right now, he says, "We scrape and claw and to get them to engage."

Although the new platform puts the RIA in charge of designing the portfolio allocations, it continues to leverage the technologies, user interface and methodologies behind Morningstar Investment Management's traditional managed accounts offering, the firm says.

At the end of last year, more than 1.4 million participants used that offering for 247,650 plans with $58.2 billion in assets, Morningstar says.

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